| Pricing: Understanding and Capturing Customer Value 291
Chapter 10 | Pricing: Understanding and Capturing Customer Value 291
Author Setting the right price Comment
Major Pricing Strategies is one of the marketer’s (pp 291–300) most difficult tasks. A host of factors
The price the company charges will fall somewhere between one that is too high to produce come into play. But finding and implementing the right price strategy
any demand and one that is too low to produce a profit.
Figure 10.1 summarizes the ma-
is critical to success. jor considerations in setting price. Customer perceptions of the product’s value set the ceil- ing for prices. If customers perceive that the product’s price is greater than its value, they will not buy the product. Product costs set the floor for prices. If the company prices the product below its costs, the company’s profits will suffer. In setting its price between these two extremes, the company must consider several internal and external factors, including competitors’ strategies and prices, the overall marketing strategy and mix, and the nature of the market and demand.
Figure 10.1 suggests three major pricing strategies: customer value-based pricing, cost- based pricing, and competition-based pricing.
Author Like everything else in Comment
Customer Value-Based Pricing
marketing, good pricing starts with customers and their
In the end, the customer will decide whether a product’s price is right. Pricing decisions, like perceptions of value.
other marketing mix decisions, must start with customer value. When customers buy a product, they exchange something of value (the price) to get something of value (the bene- fits of having or using the product). Effective, customer-oriented pricing involves under- standing how much value consumers place on the benefits they receive from the product and setting a price that captures this value.
Customer value-based pricing
Customer value-based pricing uses buyers’ perceptions of value, not the seller’s
Setting price based on buyers’ cost, as the key to pricing. Value-based pricing means that the marketer cannot design a perceptions of value rather than on the
product and marketing program and then set the price. Price is considered along with all seller’s cost.
other marketing mix variables before the marketing program is set. Figure 10.2 compares value-based pricing with cost-based pricing. Although costs are an important consideration in setting prices, cost-based pricing is often product driven. The company designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit. Marketing must then con- vince buyers that the product’s value at that price justifies its purchase. If the price turns out to be too high, the company must settle for lower markups or lower sales, both resulting in disappointing profits.
Value-based pricing reverses this process. The company first assesses customer needs and value perceptions. It then sets its target price based on customer perceptions of value. The targeted value and price drive decisions about what costs can be incurred and the re- sulting product design. As a result, pricing begins with analyzing consumer needs and value perceptions, and the price is set to match perceived value.
It’s important to remember that “good value” is not the same as “low price.” For exam- ple, a Steinway piano—any Steinway piano—costs a lot. But to those who own one, a Stein- way is a great value: 4
A Steinway grand piano typically runs anywhere from $40,000 to $165,000. The most popular model sells for around $72,000. But ask anyone who owns a Steinway grand piano, and they’ll tell you that, when it comes to Steinway, price is nothing; the Stein- way experience is everything. Steinway makes very high quality pianos; handcrafting
FIGURE | 10.1
Considerations in Setting Price
Customer
Other internal and external
of value
Competitors’ strategies and prices
costs
If customers perceive that a product’s price is greater than its value, they won’t buy it. If the
Marketing strategy, objectives,
company prices a product below its costs, profits
Price ceiling
and mix
Price floor
will suffer. Between the two extremes, the “right"
No profits below pricing strategy is one that delivers both value to
No demand above
Nature of the market and demand
this price the customer and profits to the company.
this price
292 Part Three | Designing a Customer-Driven Strategy and Mix
Parts
» | Marketing: Creating and Capturing Customer Value 3
» | Marketing: Creating and Capturing Customer Value 11
» | Marketing: Creating and Capturing Customer Value 13
» | Marketing: Creating and Capturing Customer Value 25
» | Marketing: Creating and Capturing Customer Value 29
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 37
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 41
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 43
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 51
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 55
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 57
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 63
» | Analyzing the Marketing Environment 65
» | Analyzing the Marketing Environment 71
» | Analyzing the Marketing Environment 73
» | Analyzing the Marketing Environment 77
» | Analyzing the Marketing Environment 79
» | Analyzing the Marketing Environment 81
» | Analyzing the Marketing Environment 85
» | Analyzing the Marketing Environment 87
» | Analyzing the Marketing Environment 89
» | Managing Marketing Information to Gain Customer Insights 97
» | Managing Marketing Information to Gain Customer Insights 99
» | Managing Marketing Information to Gain Customer Insights 103
» | Managing Marketing Information to Gain Customer Insights 109
» | Managing Marketing Information to Gain Customer Insights 111
» | Managing Marketing Information to Gain Customer Insights 113
» | Managing Marketing Information to Gain Customer Insights 115
» | Managing Marketing Information to Gain Customer Insights 127
» | Managing Marketing Information to Gain Customer Insights 131
» | Consumer Markets and Consumer Buyer Behavior 133
» | Consumer Markets and Consumer Buyer Behavior 137
» | Consumer Markets and Consumer Buyer Behavior 141
» | Consumer Markets and Consumer Buyer Behavior 143
» | Consumer Markets and Consumer Buyer Behavior 159
» | Consumer Markets and Consumer Buyer Behavior 163
» | Business Markets and Business Buyer Behavior 165
» | Business Markets and Business Buyer Behavior 175
» | Business Markets and Business Buyer Behavior 179
» What is Eaton’s value proposition?
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 189
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 193
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 197
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 203
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 205
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 207
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 209
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 211
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 213
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 219
» | Products, Services, and Brands: Building Customer Value 223
» | Products, Services, and Brands: Building Customer Value 225
» | Products, Services, and Brands: Building Customer Value 229
» | Products, Services, and Brands: Building Customer Value 237
» | Products, Services, and Brands: Building Customer Value 245
» | Products, Services, and Brands: Building Customer Value 247
» | Products, Services, and Brands: Building Customer Value 249
» | Products, Services, and Brands: Building Customer Value 251
» | Products, Services, and Brands: Building Customer Value 257
» | New Product Development and Product Life-Cycle Strategies 259
» | New Product Development and Product Life-Cycle Strategies 271
» | New Product Development and Product Life-Cycle Strategies 273
» | New Product Development and Product Life-Cycle Strategies 279
» | New Product Development and Product Life-Cycle Strategies 281
» | Pricing: Understanding and Capturing Customer Value 289
» | Pricing: Understanding and Capturing Customer Value 291
» | Pricing: Understanding and Capturing Customer Value 295
» | Pricing: Understanding and Capturing Customer Value 299
» | Pricing: Understanding and Capturing Customer Value 305
» | Pricing: Understanding and Capturing Customer Value 307
» | Marketing Channels: Delivering Customer Value 339
» | Marketing Channels: Delivering Customer Value 347
» | Marketing Channels: Delivering Customer Value 351
» | Marketing Channels: Delivering Customer Value 367
» | Retailing and Wholesaling 373
» | Retailing and Wholesaling 377
» | Retailing and Wholesaling 379
» | Retailing and Wholesaling 393
» | Retailing and Wholesaling 395
» | Retailing and Wholesaling 397
» | Retailing and Wholesaling 401
» | Retailing and Wholesaling 405
» | Communicating Customer Value: Integrated Marketing Communications Strategy 407
» | Communicating Customer Value: Integrated Marketing Communications Strategy 411
» | Communicating Customer Value: Integrated Marketing Communications Strategy 413
» | Communicating Customer Value: Integrated Marketing Communications Strategy 415
» | Communicating Customer Value: Integrated Marketing Communications Strategy 429
» | Communicating Customer Value: Integrated Marketing Communications Strategy 433
» | Advertising and Public Relations 435
» | Advertising and Public Relations 439
» | Advertising and Public Relations 441
» | Advertising and Public Relations 443
» | Advertising and Public Relations 445
» | Advertising and Public Relations 447
» | Advertising and Public Relations 449
» | Advertising and Public Relations 453
» | Personal Selling and Sales Promotion 463
» | Personal Selling and Sales Promotion 469
» | Personal Selling and Sales Promotion 471
» | Personal Selling and Sales Promotion 481
» How is the sales force at Nestlé Waters structured? outsells its top competitors.
» | Direct and Online Marketing: Building Direct Customer Relationships 495
» | Direct and Online Marketing: Building Direct Customer Relationships 499
» | Direct and Online Marketing: Building Direct Customer Relationships 507
» | Direct and Online Marketing: Building Direct Customer Relationships 509
» | Direct and Online Marketing: Building Direct Customer Relationships 515
» | Direct and Online Marketing: Building Direct Customer Relationships 525
» | Creating Competitive Advantage 527
» | Creating Competitive Advantage 529
» | Creating Competitive Advantage 537
» | Creating Competitive Advantage 549
» | The Global Marketplace 551
» | The Global Marketplace 553
» | The Global Marketplace 561
» | The Global Marketplace 573
» | Sustainable Marketing: Social Responsibility and Ethics 581
» | Sustainable Marketing: Social Responsibility and Ethics 583
» | Sustainable Marketing: Social Responsibility and Ethics 587
» | Sustainable Marketing: Social Responsibility and Ethics 595
» | Sustainable Marketing: Social Responsibility and Ethics 603
» | Sustainable Marketing: Social Responsibility and Ethics 605
» | Marketing by the Numbers A21
» | Marketing by the Numbers A27
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